Relief for shortfall

The taxpayer was a director of property trading company. He guaranteed loans made to the business by a bank. The loans enabled the company to buy two flats. The firm sold one flat and let the other.

Interest payable on the loan exceeded the rent; the taxpayer made payments directly to the bank to make up the shortfall.

The bank subsequently demanded full repayment; the second flat was sold at a loss and the company was dissolved.

The taxpayer claimed loss relief for loans to traders under TA 1988 s 253 and for the loss to be offset against his other income under s 574.

HMRC said relief was due only after the loan had become irrecoverable. The taxpayer appealed claiming the loan was irrecoverable as soon as the payments were made.

The First-tier Tribunal said a commercial lender having decided to lend money to the taxpayer’s...